NEW YORK -- Moody's Investors Service on Friday cut Lear Corp.'s debt rating to junk, citing reduced expectations for near-term profits and cash flow, among other factors.
The rating agency cut the senior unsecured debt rating to "Ba2," the second-highest junk rating, from "Baa3." Ratings downgrades can increase a company's borrowing costs.
Moody's said it cut the auto parts supplier's debt rating because debt levels have increased due in part to financing sought to offset negative operating cash flow.
The rating cut to junk reflects the difficult operating environment in the North American auto supplier industry, Moody's said.
Moody's is also concerned about Lear's financial structure because it depends on the top three North American automakers for at least half its revenue. Lear's has faced a lower production volume because of production cuts at General Motors, Ford Motor Co. and the Chrysler group.
Moody's said the outlook is stable based on expectations that when restructuring is completed, Lear will have diversified its customer base, which will support stronger margins and renew cash flow.